Some Questions on Section 179

We had a reader ask the following question:

“Do I have to take 100% of the cost of  property when oping for the section 179 depreciation, or am I also allowed to take any % less and then use normal depreciation for the remainder? Also if it is placed in service in 2011 and paid for in 2012 is it all reported on the 2011 taxes?”

You are not required to take 100% of the cost of an asset for Section 179.  Section 179 is an election that a farmer can make.  By using the election, the farmer will list the asset that they want to take the deduction on and how much of a deduction they want to take.  For example, if you purchase a tractor for $175,000, you can elect to take Section 179 of anywhere from $1 to $175,000 (depending on your income limitation).  The remaining amount after the Section 179 deduction will be depreciated normally.  For 2011, if the tractor is new, then the remaining amount will be 100% bonus depreciation and if used, it will normally be depreciated using a seven year life.  If you purchase new equipment, we would normally suggest just taking the 100% bonus depreciation for this year.  Reserve Section 179 for any used assets.

For the second question, as long as the equipment is placed in service before the end of the year and the farmer has incurred a debt (to be paid after year-end), the equipment is available for Section 179 or 100% bonus depreciation if new and Section 179 if used.